Political Economists Denounce Social Studies of Finance for Overlooking the Political

May 21, 2010

The first day of the Parisian “Reembedding Finance” conference ended up in a controversial storm. The workshop, as planned by Olivier Godechot, was an attempt to emphasize the non-Actor-Network aspects social studies of finance. “The social studies of finance is not STS with the ‘t’ exchanged for an ‘f,’” he said, in reference to the acronym of Science and Technology Studies. And the political economists that came to the workshop, led by Karel Williams, corresponded the invitation by mounting a denunciation of the social studies of finance as “nerdish case studies” of the economy.

The Financial Innovation Liturgy

The context of this denunciation is Williams analysis of the (so far) admittedly timid regulatory response to the credit crisis. The bankers, Williams believes, have not been sufficiently punished for their sins. The reason for this injustice is to be found in political economy. The rhetoric mobilized by the bankers about their own social value to the economy (tax revenue and financial innovation) has successfully become a “liturgy.” There has not been a successful response to this liturgy because of the narrow interests and structural constraints of the political actors that can provide it. Politicians, on the one hand, are happy to stick to appearances by looking aggressive towards bankers in congressional hearings… without ultimately doing much. And regulators find it tough to alter the status quo because unilateral reform in London or New York would just cause capital flight to the rival center.

In sum, the juxtaposition of the different interests of the actors has led to the non-reform of finance. “Where you sit is where you stand,” Williams says. Stalemate. Bankers are getting away with the crisis.

The presentation, delivered with an effective tone of moral indignation, made a sudden turn in the Q&A. It turned the critical focus away from bankers, and towards the social studies of finance.

The radical challenge from political economy

Karel’s challenge to the social studies of finance came as a response to my own question. I was particularly unsatisfied by his reduction of social action to simple interests determined by professional affiliation. Politicians (all of them) want this, regulators (in their entirety) want that, and bankers behave in yet this other fashion.

“The strength of your account,” I told Willaims, “lies in its simplicity. What you argue is that cunning bankers, in conspiracy with politicians, duped the public with over-complex business models.” But the truth is more complex, I added. Securitization remains alive, and is being used now to finance the investments in clean tech that will hopefully cool the planet. The pioneer in mortgage CDOs, JP Morgan, has come out unscathed by the crisis. And the problems of Lehman and Bear was most likely not an agency conflict: both of their CEOs had their interests perfectly well aligned with the shareholder, as they had all their fortune tied up in bank stock, and lost it with the banks failed. The credit crisis, in other words, is far too complex. It does not fit most simple narratives such as agency theory or “financial innovation is bad.”

Karel’s response, cogent and impassioned to a degree rarely seen in sleepy academic conferences, was an overarching critique of the social studies of finance. These, he argued, are “nerdish studies of the economy.” And he had “enough studies that distinguish between good and bad bankers, whether coming from you or Gillian Tett because there are always two bad bankers that bring down the entire system.” And just as he finished saying this, the moderator called up time out. End of discussion. On to the next presentation.

The controversy, however, had barely begun. Has SSF lost itself in a maze of technical studies? Should it be dumping the careful multiyear ethnographies and take up political economy? What, in other words, is the proper SSF response to the political economists?

Over Perrier and later at dinner, an inspiring conversation with Anette Mikes, Liliana Doganova and Olav Velthuis, it became clear that this challenge is neither new nor worrisome. We’ve been here before. I first heard this in 2004, in Paul Du Gay’s critique of my presentation with Fabian at the sociology of finance workshop in the Open University. It is also replay of Mirowski’s controversy with Callon four years ago at the Performativity Workshop in this same city. And I heard it yet again from Neil Fligstein last year at the Berkeley “Markets of Politics” workshop that I co-organized. Macro sociologists of fault the social studies of finance for the same reason Hollywood moviegoers eschew European movies… too much moral ambiguity. So much easier to have indians and cowboys, gangsters and heroes, bankers and innocent home-buyers.

Critique vs. insight

The moral imperative to denounce deserves thought. I am often asked, “how can you study this people in reference to bankers?” and “how come you are not dumping on them?”. But I’ll say this: I’ll take empirical insight over critique anytime. As an ethnographer, I try to generate new insights. I do that by exposing myself to surprise. And the only way to expose myself is to suspend, to some degree, my own moral judgment about the people I am studying until you see their actual actions. Individuals are complex and multifaceted. Crusading makes me miss that complexity.

Criticism is applied in political economy by portraying actors as fundamentally driven by neat and simple interests. This can be powerful when things are that simple. But pragmatically, the problem I always had when trying to fit the macro picture painted by the political economists – greed, recklessness or lemmingness – I don’t actually see it. In this vein, what my presentation will show is (1) the importance of being open to the habitus and traits of the traders; (2) the aggregate events we observed cannot be directly mapped to individual traits; (3) the importance of understanding how the material artifacts are shaping individual behavior.

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13 Responses to “Political Economists Denounce Social Studies of Finance for Overlooking the Political”


  1. Very nice insight. What an interesting discussion.

    A short but I think very interesting critic of the performativity arguments in MacKenzie books (“An Engine Not a Camera: How Financial Models Shape Markets” and “Material Markets: How Economic Agents are
    Constructed” appears in Hodgson’s review at the last Socio-Economic Review (2010) 8, 399–410.
    Link: http://ser.oxfordjournals.org/cgi/reprint/8/2/399

    For me, this critic is rather strong and deep than the one shows by Williams.

  2. Michael Bishop Says:

    I’m glad different schools of thought are engaging each other. Why not add some more econ and finance blogs to your blogroll?

  3. Jacques-Olivier Charron Says:

    At Manchester’s recent “Finance in question, Finance in crisis” CRESC Conference, I also heard this kind of critical remarks against SSF expressed by (again) Philip Mirowski and (already) Karel Williams. But I also heard Donald Mackenzie’s account of the crisis (the story of ABS, CDOs, “russian doll” ABS CDOs…) and Michel Aglietta’s macroeconomic account of the crisis (the end of a growth regime and the lack of a macro-prudential regulation…) and I just didn’t find them contradictory : they just explore different aspects of an indeed complex reality.
    More generally, it seems to me that fieldwork on financial markets (including some non-STS research: see Olivier Godechot or Horacio Ortiz’s work) does not necessarily contradict political economy or macroeconomic approaches of finance, and that some complementarity could be found. For example sociological or anthropological approaches of financial actors could help economists to define or redefine their research questions, and economists could help sociologists to take in account the bigger picture, i.e. larger-scale inferences or consequences of what actors actually do, not necessarily in moral terms.
    Well, easier said than done, but constructive discussions could emerge.

  4. PE Says:

    “And he had ‘enough studies that distinguish between good and bad bankers…'”

    I think this brings up a crucial question, i.e. when do we have enough descriptions? How do we know when we collectively have reached “enough” and we can switch to explanation and critique? What if quite the opposite is true, meaning that we don’t have enough descriptions of what is actually going on in the world of finance and that is the reason for the slow policy response? It would suggest that anthropological description would need to be given a chance first to produce a critical mass of descriptions, on the basis of which then it could be more fairly critised as a method.

    Gaining ethnographic access to the right places would of course mean that social scientists would inevitably get more involved in the goings-on of these institutions, which in itself would be a qualitative change in how these places are run. Perhaps the problem is that not enough ethnographers are stalking the corridors of power…

  5. yuvalmillo Says:

    Daniel, thanks for the post. This issue of ‘SSF and politics’ is raised time and again over the last ten years. You mentioned, I think, all the notable exchanges. This controversy, of course, is nothing new and is, if we simplify a little, a revised version of the Latour vs. Bourdieu controversy and many other debates about the over-socialisation vs. under-socialisation: do actors merely represent interests (class-based, cultural, personal) and therefore all we need to do is to identify which of the archetype is at play or should we look at the environment, devices and technology where such interests are materialised and performed and analyse that? Following the former approach will lead us to the type of research that we see frequently in International Political Economy, where bird’s eye view of the events and actors is employed. This, in turn, produces general analytical descriptions of the events that capture much, but explain little. The latter approach, in contrasts, believes that interests matter a lot, but that they never appear in their ‘naked form’. Greed, for example, did not cause the last crash. Instead, it was greed armed with sophisticated mortgage-based derivatives, a lenient regulatory environment and biased rating agencies that brought about the meltdown. Stripping the material and technosocial from the analytical story would virtually deny us an explanation of what actually happened. The different actors involved in the crash did not react to each others’ interests, but to the market affects of each others’ actions. This is why studying market devices in such detail is so important. Interests are always present, but crashes, mercifully, only happen every few years. Why? It is because crashes happen in the complex, messy interfaces between people, machines and procedures and not in the clear-cut world of interests and grand theories. So, to understand crashes we have to get our hands dirty and this is exactly what SSF does: following the actors around, asking questions, observing and collecting detailed, ‘nerdy’, data.

  6. Chris Jefferis Says:

    Does anybody know of any papers published exploring this debate?

  7. Chris Jefferis Says:

    I think part of what SSF suggests is that the interest at stake in this crisis are quite subtle i.e. are the risk management techniques that underpin value of MBSs or CDSs rational? In what way are they socially constructed? Its the efficacy of financial management techniques which is at stake.

    Williams seems a lot quicker to be dismissive of these techniques as opportunistic ‘bricolage’ because he is not so curious about differing forms of rationality because he is focusing on finding a practical critique of inequality that can ground political claims rather than an in depth exploration of discursive power.

  8. danielbeunza Says:

    All — thanks for the comments. I see that this is of great interest to the SSF community. I am encouraged by all of them, and particularly Chris’ comment, to think of writing something about this in paper format. The best critique of ANT i’ve seen is in “Do Economists do Markets,” by Mirowski. There is no organized reply by the ANT guys, though.

    One approach that comes to mind (inspired by Jacques Olivier) would be to work on an epistemological paradox: stress the similarity between political economists and… neoclassic economists! In all of them, the interests of the actors are fixed at the outset in the research process. They are *assumed* to be one way or the other.

    Another line into the argument, following Yuval’s point, would be to have a historical account, going back to Bordieu.

    But in any event, I think that the point is not to stress the complementarity, but the radical difference between SSF and IPE. I think the two come at the OPPOSITE conclusions over issues. E.g., should the debates on shorting (great thing, if you look at it as a form of controversy) or in the relationship with behavioral finance, which the IPE folks cannot like enough.

    And Michael — point well taken! My favorite is jck at Alea. Could you suggest which are your two favorites?

  9. Pete Says:

    Daniel,

    Any chance you could expand a bit on the tendency of SSF and IPE to reach opposite conclusions?

    And on the finance links, may I make a request for Mike Konczal’s always entertaining Rortybomb:

    http://rortybomb.wordpress.com/

    It’s moved more towards advocacy for left-leaning financial reform of late, but that seems in keeping with some of the themes touched on in Dan’s “Performativity and Politics” post.

  10. danielbeunza Says:

    Pete — thanks for the blog suggestion.

    And excellent question! I am going to address it on a separate blogpost.

  11. Erica Says:

    I find all of these political economy critiques disappointing for the same reasons they think our work is disappointing — I would prefer to be a non political bureaucrat / social scientist (to the extent that’s possible), and understand problems in detail, to suggest realistic models, rather than quickly acting or responding due to certain ideological criteria. Although, perhaps you can say that my ideology is that of a bureaucrat, and you would be right.

    If you want to go back to Weber, which I think is useful here, it seems that the ‘punish the bankers’ crowd skews to either traditional or charismatic authority, while I would hope that both STS and SSF would be in the camp of rational-legal (aka technological-bureaucratic) authority.

    For this reason, I would much prefer SSF to go closer to org studies, rather than political economy. But what can I say, I’m a trained bureaucrat, and so I know that it would be more likely for the sub-discipline to grow if it can appeal to various types of researchers, growing a broader constituency, rather than representing a narrow ideological focus.

    (PS, on the topic of politics, can I also mention how thrilled I am about the new ASA section on global and transnational processes? Now we have finally have a home for sociologists who study globalization but don’t identify with IPE. http://seis.bris.ac.uk/~ggmhf/GlobeSocWeb/)


  12. About the point on politics and ANT…In a recent paper of Alcadipani and Hassard (Forthcoming in ORGANIZATION)
    http://org.sagepub.com/cgi/rapidpdf/1350508410364441v1.pdf
    The authors show how the literature of the “ANT and After” offers the possibility of a political critique.


  13. […] attacks on performativity and actor-network theory have turned into a literature on its own (see this, this and that). Here at SocFinance we cannot keep up with such enthusiasm, but welcome the free […]


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